Innovate on Purpose

Thursday, May 26, 2011

Second Life as an innovation platform

I publish, along with our partner Started Cat, a paper in InnovationManagement today about a project we are finishing using Second Life as an innovation platform. I'd encourage you to read it and consider Second Life or other immersive experiences as excellent idea generation, prototyping and role playing platforms that can accelerate your innovation efforts.

We decided to use Second Life for several reasons. First, the team we were working with is highly distributed and it is difficult to get them in one place, face to face, with any regularity. Second, we felt that the team needed a "jolt" to the way they worked. Becoming an avatar in a virtual world forced them to think and behave differently, which spawned many more ideas, and I think more radical ideas. Third, we could quickly build or prototype any experience or interaction that we wanted to test, often literally changing the landscape or interactions on the fly. Finally, we had a chance to role play the customer to see interactions and experiences from their perspective, which was like gathering ethnographic data.

Coming into the work I felt that our client would be forced to think differently, confronted with a virtual world, which might open up new ideas. The results went much further than that - we recognized what a powerful platform a virtual world can be for innovation and innovative teams. The distributed team could meet quickly and easily without traveling, could explore situations together in a world tailored to their needs and could examine problems and opportunities and actually test them in real time.

Check out our article at InnovationManagement and think about the power that virtual worlds can offer as an innovation platform. Contact us if you are interested in learning more about what we did and how we can replicate the experience for your team.

Tuesday, May 24, 2011

Time to innovate the business model in films and pharma

In a number of industries, large firms have created the concept of a "blockbuster". The blockbuster is the big "make or break" product or service that creates such a bow-wave of profits that it sustains all the other development projects. You are familiar with blockbusters if you take medications like Lipitor, which is one of the most profitable drugs ever created. Unfortunately for its manufacturer, Lipitor's patent will run out shortly, and there don't appear to be too many new blockbusters in the hopper. For years the pharmaceutical industry has focused on finding and protecting the next blockbuster, while placing less emphasis on drugs that solve problems but don't drive as much revenue. This strategy, which drove up pharmaceutical stock prices in the 80s and 90s, is beginning to look a bit thin, as the costs and risks associated with developing a "blockbuster" and the increasing difficulty of identifying molecules or compounds that have the potential to be blockbusters is growing smaller day by day.

Hollywood does blockbusters as well. They bet the farm on big, action-packed movies that release in the summer, and near Christmas. A good gate from a big film means lots of revenue and profits. Miss on your big blockbuster and your year is sunk. Increasingly, it is becoming more and more difficult for "big" blockbuster movies to make money, as the costs rise and consumers turn to other forms of entertainment.

Hollywood and the pharmaceutical industry have become servants to a creature they created. At one time, new blockbuster drugs or big summer movies seemed easy, so rather than create a lot of moderately successful drugs or movies, many of the firms placed one or two big bets. This made sense if the blockbuster was relatively easy to define and achieve, but now the investment in a new movie or a new drug is so large, and the risks so great, that few firms will do anything outside a proven formula. However, those proven formulas are beginning to unravel. What will Hollywood do if small, independent film producers can go STY - Straight to Youtube? How will large pharmaceutical firms sustain themselves as it gets harder and harder to generate the big blockbuster drug?

Increasingly the old formulas don't seem to be working anymore, and we may see the need for a big shift in the business model of these industries and others that have grown lazy, and have become more and more reliant on a few blockbusters to cover up a lot of mistakes. The "formulas" that they've followed have become ingrained as business models, and that's perhaps the first thing that needs to change, otherwise we're likely to have Rocky VIII or Star Wars prequels thrust upon us in years to come.

For films, the industry needs to realize that many people have in their homes projection systems and sound systems that rival what movie theaters can provide. Further, as the Blair Witch Project and other "small" movies have demonstrated, many good, profitable movies can be made for far less cost and far fewer special effects than most Hollywood productions. In fact, Hollywood is at risk of forgetting that movies are just a way of telling good stories. The studios risk losing the actors and the stories at the expense of computer animation. Perhaps it's time to re-innovate the business model, and become an evaluator and distributor of excellent stories created by far more people, or return to finding stories and actors that matter. Hollywood needs to recognize as well that in today's demanding attention culture, people have many other outlets for their attention. When I was a kid, we saw Star Wars (the first one) at least a dozen times in the theaters. Movies would remain in a theater for weeks. Now, most films are fortunate to remain in a first run theater for days. Again, Hollywood needs to adapt to that reality or change it. All of these impacts demand changes to the business model.

Pharmaceutical firms are in worst shape, if that is possible. For too long they've grown addicted to the blockbuster drug, the treatment not the cure, which is expensive, can be protected by a patent, and serves a large base of customers. As the wealthy first world countries become more healthy and many of the large scale illnesses are addressed with medication, it becomes more and more difficult to find a blockbuster. Yes, there are large scale illnesses to be treated, but often in countries where the patients can't afford medication. And yes, there are still acute illnesses to treat in relatively healthy countries, but often the population suffering the illness is small. Pharmaceutical firms are increasingly faced with a choice - continue to chase ever more elusive blockbusters or rework their business models to attack niches (as PA describes in the link above) or work to find less expensive ways of creating and testing drugs that serve the needs of larger but poorer populations. Even if market realities don't begin to force this, government regulations and costs will force pharmaceutical firms to find new and less expensive ways to produce drugs, due to the rapidly rising costs of health care and the burden it places on government budgets, in the US, Europe and Japan.

There's nothing wrong with a focus on the "blockbuster" product or service from an innovation point of view, but when the pursuit of blockbusters defines and limits your business model and the kinds of products and services you can innovate, then it's time to innovate the business model.

Monday, May 23, 2011

What do innovators know that you don't?

From the outside, looking in at innovative firms, it seems that the innovators must be fantastically insightful, smart and rapid responders. After all, innovation requires that someone or some team spot a great new opportunity, create a product or service to fill the gap, and arrive in the market with the solution before anyone else, yet not too early. What is it that good innovators know that you don't?

Perhaps it's easier to answer this question by examining what they've learned.

First, they've learned that interesting, valuable innovation comes from cues and signals on the adjacency of their markets or businesses. Good innovators combine ideas from the edges of their markets and industries, introducing new ideas and new concepts.

Second, they've learned that a lot of ideas that seem very valuable are often misguided or just plain wrong. What they've learned from those experiences is that one "mistake" is never fatal, just a learning experience to be incorporated later.

Third, they've learned that innovation is not a "utility" like water from the tap or electricity at the switch. It cannot be simply "turned on" when required and "turned off" when the firm has enough innovation. It either runs, and runs consistently and well, or doesn't run at all.

Fourth, they've learned that they need to learn about innovation. Innovation has a body of knowledge, a wide range of tools and embedded skills. Even good innovators know that they must constantly learn more about innovation in order to be successful.

Fifth, innovators have learned that the most important gap between ideas and new products and services is the transition between an "idea" and a prioritized product or service development project. Sponsorship of good ideas, the focus that enables a good idea to become a prioritized project in product or service development, matters perhaps more than any other factor.

Finally, good innovators have learned that complacency is a death sentence. The global economy is accelerating, customer demands are shifting and firms in any geography can compete anywhere. What we used to think of as paranoia is now a reality.

What do good innovators know that you don't? They know that innovation is not a discrete, one-time, on and off effort, but something that everyone needs to work on all the time, accepting failures, learning more all the time. Those folks aren't any smarter, or more insightful or gifted. Often, they've just stuck with it longer, persevered through the same kind of resistance you'll find in less-innovative firms. And through it all they've developed a "muscle memory" for innovation you can't get by trying once.

Thursday, May 19, 2011

Why innovators are decathletes

After close to eight years doing innovation work, you'd think there would be few surprises left, but almost every week I get another perspective or another insight that simply floors me. Whether its the gap between what CEOs say about innovation (typically 70% list it as a top 3 priority) and the actual implementation of innovation (barely 25% of firms acknowledge creating an innovative product last year), or the completely mixed signals that many firms send about the importance of innovation without any change to evaluation or compensation schemes, innovation efforts constantly encounter an almost Kafka-esque reality.

None, however, more so than the mental and physical athleticism necessary to be a successful corporate innovator. I was thinking about this based on an article I read which dealt with "amping" up creative thinking.

In many organizations, the vast majority of people spend very little time thinking about or pursuing ideas, and even less time preparing to actually do anything innovative. Then, in one fell swoop, an executive demands a new innovative product in far less time and with far less resource allocation than is feasible. So, from a standing start, with no preparation, no "stretching" and no familiarity with the tools or processes, the innovators are in a sprint to the finish. Or, really, a decathlon.

I think of innovators as decathletes, if there is such a word, because of the many challenges, hurdles and obstacles they must overcome, and the many different capabilities they must display. Decathletes are people who are really good, but not world class, at a bunch of different athletic events - sprints, distance running, jumping, throwing, hurdling. Innovators have to be the same. They encounter plenty of obstacles that they must surmount. They hurdle issues that others in the business never encounter. Their projects often start at a sprint, but can turn into a distance event.

However, we haven't been training decathletes in our organizations, and we haven't introduced even so much as an occasional stretching period or a coach. Instead, we've trained our organizations to all be sprinters, sprinting from one quarter to the next, constantly running the same distance over the same courses. What we need now, when innovation is in high demand, are decathletes, or at least relay teams that contain the range of skills and athleticism we need.

What's your firm doing to build or at least identify decathletes, or teams that can form a decathlete relay? Are they working together? Do they get the time to "warm up" and stretch before the starting gun? Do they practice their innovative skills before they are deployed in the Olympics of a critical new innovation project that's meant to save the company?

The US would never dream of selecting a decathlon team built entirely of 100 meter sprinters and asking them not to practice any other event, and further, ask them to only focus on the 100 meter until the day of the decathlon, then wonder why the decathlon team fared so poorly. Sounds crazy, right? But that's exactly what we do with innovation teams. Neglect their training, misunderstand the range and depth of skills necessary, and never allow them to practice those skills until the need is critical for high performance.

Over the last two decades we've spent millions of dollars developing one very special type of athlete, the sprinter who can achieve very specific goals over a very specific course. Our managers are gold medalists at this event. However, the future will demand that every business participate in the decathlon. Is your business, are your teams, ready?

Wednesday, May 18, 2011

"Staking" out innovation success

In the past few weeks I've been exploring the idea of a "collaborative" innovation reference model or framework. We had discussions with folks on Innochat, and I came to realize that the concept of a framework was viewed as limiting.

In a short call with John Lewis, we explored why the concept of a framework was perhaps confusing or sent the wrong message. As we discussed the concept we agreed that three things were necessary for innovation to "take root" and grow. You'll note a number of gardening or farming references in this post. Further, I will call on Peter Sellers, in his role of Chauncey Gardener in the movie Being There, to make my case.

First, the innovation plant needs good soil. This means that the environment needs to be carefully considered. The "soil" must be rich with people who understand the goals of the firm, and the culture must be supportive of innovation. Second, the plant must be well anchored. Any effort to create something new will meet with resistance. Only a well-anchored plant survives wind and rain. Likewise, a well-anchored innovation effort has a greater chance of survival. Third, many plants are heliotropic, and grow upwards toward the sun. Often, they need support because they can't support the weight of the plant and its fruit. Many plants - tomatoes - for example, need a support system to bear the weight of the vine and the fruit. Likewise, innovation efforts must have support "architecture" or infrastructure which helps support and sustain innovation work and outcomes.

As we discussed the concept of an innovation "framework", it appeared too confining, so as John and I talked we considered what we actually wanted - a supporting structure that allowed the innovation effort to achieve its best outcomes without necessarily dictating its direction or its upward growth. The best analogy I could come up with is a trellis. And yes, I know the link points to a tomato stake, not a true trellis.

A trellis offers a plant a "place" to grow, especially vertically, that the plant desires and needs, but does not dictate the rate of growth or place limits on how the plant should grow. It supports the plant when adverse conditions occur, and as the plant becomes encumbered by its own weight. A trellis is aspirational and supportive, never proscriptive or limiting. Many plants simply couldn't grow to achieve their best outputs without a trellis or other supporting device.

Likewise, innovation needs a "trellis". It clearly needs to be anchored against the shifting attitudes of the market and internal competition for resources. Innovation needs support and an "infrastructure" to help it grow, encouraging but not limiting, directional but not dictatorial, expansive not contractive.

All three conditions: good soil (or conditions and culture), good plants (good ideas or good teams) and good supporting structures (roadmaps, "models" or frameworks) are necessary for innovation success. In gardening, a great tomato plant in good soil with no support structure may produce good fruit, but often that fruit doesn't reach its potential or rots on the ground undetected. Many corporations start innovation projects with good plants, that is, good ideas, poor soil (a culture not attuned to innovation) and never give a second thought to the preparation of the soil, the care and feeding of the young plant, and the necessary structures that allow the plant to reach its full potential (models, frameworks, infrastructure, processes).

As I wrote in a Tweet last week, innovation is the plant that grows in the conditions you create. Transplants in poor soil neglected and without support rarely thrive. Perhaps the least understood component of the three is the supporting frameworks, since many executives don't appreciate how hard it is for these innovation plants to thrive in cultures and conditions that aren't favorable.

Tuesday, May 17, 2011

No Strategy, No worthwhile Innovation

I've written previously that many organizations confuse innovation and strategy. Strategy consists of the vision your executives have for the business over the longer term. Strategy includes how the firm will acquire the necessary inputs and resources it will need to thrive, and encompasses the changes that the firm will make in its products, services and served markets in order to continue to grow and differentiate from competition.

Or, at least, that's what they tell you in the MBA program. Innovation, on the other hand, is a tool or capability that helps identify new markets or opportunities and encompasses the tasks (idea generation, validation, prototyping and commercialization) to bring a new product or service to market, to serve existing or prospective customers. Note that innovation, at least in the definition I've provided, isn't necessarily dependent on strategy. And clearly, anyone or any firm can innovate. Dreaming up new ideas, new products or services isn't really all that hard. But what makes innovation so unusual is when a new product or service aligns with a customer need and those two things happen in a firm that can create the product and address the customer need. And that alignment happens because of vision and strategy. Far too often, innovation creates interesting products that don't provide a necessary benefit to customers, or products or services that don't align to corporate strengths. And that is a signal that innovation is out of step with strategy, or that there is no clear strategy.

Every firm starts out with a strategy. Entrepreneurs attack a need they believe is overlooked or unfulfilled. Over time, as businesses grow and the range of products and services increase, and the number of offerings to defend increases, it becomes more difficult for a firm to communicate with great clarity its strategy, since strategy says as much about what you "won't" do as it does what you will do. Further, as the market becomes comfortable with a steady, consistent earnings model from your business, creating new products and services, or even introducing new strategies, takes a back seat to maintaining a consistent earnings engine. The longer this focus ensues, the more importance to maintaining status quo, so the strategy becomes more about maintaining status quo than about creating new visions or new products or attacking new markets.

What happens, then, when an executive decides he or she has no recourse but to innovate? Without a clear strategy, or with a clear strategy that is focused on maintaining a steady earnings engine, it is exceptionally difficult to know which markets, opportunities, products or technologies are valuable and interesting. Without clear strategy, many innovators simply spin their wheels. Is it any wonder that many of the firms we consider good innovators are also good strategists? Steve Jobs, when he returned to Apple, cut a huge swath of products that Apple had offered, narrowing the focus of the firm. He was responding to Fredrick the Second's axiom of war that "he who defends everything defends nothing". Apple stepped on the innovation gas when Jobs reduced the breadth of the product offering and created a clear strategy.

You don't need a clear strategy to innovate, but if that's your condition you'll find many ideas that are interesting but ultimately aren't valuable. Good strategy defines scope and targets for innovators to achieve. Good strategy, well-communicated accelerates innovation and helps innovators achieve better results.

Friday, May 13, 2011

Innovation language/model unconference

Ok, so the discussion has gone back and forth. We've unveiled a wiki with lots of information about a first attempt to create a "collaborative" innovation reference framework. We've had an Innochat session that allowed a lot of people to comment on the model and further the discussions.

Now, it's time to take this further.

If you are an innovator, in any field, in any discipline, academic, consultant or any other form or format, we are seeking your ideas and input. We want to hold some one day events that allow those of you with the passion to accelerate the adoption and use of innovation to help design an innovation language, set of guidelines or whatever comes to mind.

This offer is open to anyone who is willing to come for a day, get involved, express their ideas and help shape the discussion and the outcome. So far we have two potential opportunities:

June 16th: Boston Area. This will be aligned with Renee Hopkins and Andrea Meyer's Innobeer meeting. Currently we have about 10 people who have expressed interest. We'll need a location to meet.

Late July: Chicago. We've had a location suggested and seven people have expressed interest.

Sometime in the summer: London. We've had four or five people express interest.

Other dates and locations if you will agree to support and/or offer a location.

UPDATE (5/16) San Francisco looks like a possibility with several Bay area innovation practitioners indicating interest.

UPDATE (5/16) We've had an offer of space in Vienna, Austria

Here's what I need from you:

Let me know if you are interested in attending one of these events. Right now all we need is strong interest, no definitive commitments.

Let me know if you are interested in hosting one of these events, or willing to schedule another one. Hosting will basically involve providing meeting space for hopefully 10-15 people for a day. No other investment is asked for - the unconference is meant to be free for everyone.

We need a critical mass of at least 10 people to make it worthwhile to hold these events. The concept is a full day meeting, defining a common innovation language, reference model, guidelines and anything else. We'll publish the results on the wiki for general use. Ideally we'll define some methods and models that simplify innovation and accelerate innovation adoption.

You may contact me if you have questions. Please let other people know about these meetings and have them contact me if they'd like to participate.

Wednesday, May 11, 2011

Even Superstars get the blues

I read yesterday Kate Bennett's post on the concept of an Innovation Superstar. I think many organizations wish they had an innovation superhero, but I think that the superhero is a thin uncertain foundation to build an innovation capability on.

I like a lot about what Kate writes about, and I'm not attempting to pick a fight with her. If your firm is lucky enough to have an individual who is capable of wearing the mantle of innovation superstar, more power to you. However, from our experience, it becomes evident fairly quickly to everyone that the role is a terrible slog.

Innovation superstars are necessary in some organizations because there is no agreed method or theme to generate and manage ideas, no process to find funding, no available resources to help convert good ideas into viable products and services. In effect, the superstar often generates the idea, manages the idea and through sheer force of personality manages to convince enough people that the idea should become a new product or service. Given that the average time from idea to product in many businesses is measured in years, not days or weeks, this is a tremendous effort swimming upstream the whole way, with little support and no cultural encouragement.

These superheros must have a compelling vision, must be completely sold out on their ideas, must be excellent communicators, able to present new ideas without ruffling feathers or asking people to put existing products or services at risk. They must be able to beg, borrow or steal resources and cadge enough funding to test the idea, and must have enough business savvy to find the right sponsors who will agree to convert an idea from an intangible concept to a commercial product or service. Given that strong innovators with defined processes and teams of people, supported by innovation software often struggle at doing this work, what strength of purpose and what perseverance must the superhero have in order to do this once? And, having done it once, could possibly stomach the idea of doing it again?

Now, if you'll tell me that you have someone that matches this description in an organization that is fortunate enough to have cultural support for innovation, sympathetic managers willing to provide resources and a defined workflow, we'll say what are you waiting for? But without the cultural support, infrastructure, resources and sponsorship, the superhero will be lucky to convert one good idea before finding another role out of sheer exhaustion.

Note that Kate says at the end of her blog "If a Superstar is completely unsupported or leaves an organisation, however, it will not be long before the innovation programme is floundering and the excuses begin." And you might ask yourself, if an individual has that much capability and passion, why would they remain in a place where their skills and capabilities aren't rewarded and valued? They'll either leave, to find a firm that acknowledges and supports their capabilities, or take a much more comfortable but boring position in their existing firm. No one wants to fight corporate bureaucracy on a regular basis, and those that try often end up on the outside looking in.

Strong, committed personalities are important for innovation, whether those personalities are in the executive suite or in innovation roles in the organization. But those personalities, no matter how strong they are, aren't a match for the inertia, fear of change and avoidance of risk that many organizations present. If you have a superstar, nurture them, and give them the support and infrastructure they need to thrive. But if you don't, you can create an innovation process and culture that allows anyone to develop an idea successfully. Superstars are valuable, but supporting culture, processes and infrastructure are far more valuable. Often, the presence of Superstars indicates a lack of agreed methods, processes and workflow. Many within the organization will carefully examine the workload of the Superstar and decide they have better things to do than innovate.

Monday, May 09, 2011

Models? We don't need no stinking models!

I was blessed with the opportunity by the good folks (Renee and Gwen) who manage Innochat each week to lead a session last Thursday (May 5, 2011) on the opportunity to create a collaborative reference framework for innovation. There are a number of things to take away from that experience.

First, the number of people who care deeply about innovation and understand its importance is astounding. I learned a tremendous amount from these folks. Second, the passion that they demonstrate in 140 characters is pretty amazing as well. Third, never assume that a word or phrase means what you think it means to others. We had a short debate about the phrase "cottage industry", for example. And finally, when you are working with smart, engaged people about a subject they care deeply about, be sure to define your goals and expectations clearly.

I think I failed the Innocats on that particular issue, or perhaps we just needed to discover some basic truths along the way. Paul Hobcraft and I have been working on a collaborative innovation reference framework for several months. It is our belief that the lack of an innovation "standard" for lack of a better word slows the adoption of innovation and the wide range of approaches and techniques causes uncertainty and confusion. In the Innochat we asked questions about whether or not an innovation framework or standard would add value, and if so, how it could be constructed and communicated broadly. This is where things fell apart a bit for me.

Many people on the Innochat felt that a framework would be too restrictive, forcing people to follow a prescribed set of steps or stay within a specific set of actions. As I thought about this later I realized that there are several "kinds" of frameworks - some frameworks or models are proscriptive, they tell you exactly what to do. Some are based in a legal framework - they tell you what you can and can't do. Some are interpretive - they tell you where to start and what to consider when you start. Our goal for an innovation reference framework was the latter - a common starting point, that helps illuminate the factors a firm should take under consideration before starting an innovation effort.

It's my experience that many firms "plunge in" to an innovation effort without fully considering the necessary starting points and influencing factors within their own organization. Since factors like strategy, people, processes and culture often aren't taken into consideration at the start, they become barriers that are dealt with later in the project. Our recommendation for a "framework" was to paint a picture of what should be taken into consideration at the start of a project, and offer some advice on best practices as the work unfolds, rather than to dictate exactly which actions or steps should be taken in each phase of any innovation effort.

It's interesting to note that most industries that are highly profitable have accepted standards. Most PCs operate on the standard of the IBM PC, and while the PC itself is commoditized, there are plenty of firms that make a good living adding value to the standard. One area of discussion in our Innochat was GAAP. Clearly accounting principles are proscriptive and legal, they form relatively definitive barriers to what a firm can or should do. However, plenty of large accounting firms make good money helping firms work within that framework and further, interpret the framework. Clearly an innovation framework would not be nearly so proscriptive or definitive, leaving plenty of room for interpretation while offering guidance.

So what's left for the new corporate innovator? Narrowly tailored tools and techniques developed and supported by firms that have a vested interest in the model or method, or trying to develop an innovation method or framework on their own. The first demands too much faith in models that may or may not scale or be applicable to their needs, and the second is simply asking every firm to reinvent a wheel that many of us know how to build. In the absence of a "standard" every solution seems equally reasonable, and therefore none are.

I think in the end we circled back to the starting point. People seemed to agree that a loosely defined, flexible framework that defined a common starting point made sense. Clearly there are those who stand to lose if a common reference model unfolds, as there are many competing methods and techniques and most of those are shrouded in mystery, managed only by the small group of experts that surround the specific method or technique. Further, there are a range of innovation approaches - Open, Needs-Based, Business Model, etc - that offer very different outcomes and different deployments of innovative ideas. These approaches need to be defined in the context of the innovation effort, which again recommends a common starting point that illuminates the work that needs to be done. Note the word illuminate, not the word dictate.

So, models. Perhaps we don't need any stinking definitive innovation models, but we all agree a common starting point, that offers guidance and is interpretive based on the situation and the need, which informs the innovation teams and their work, will be helpful. If you think so, please join us on our wiki to help make that a reality. If you think we are wildly off-base with our goal, or merely Quixotic, you can feel free to let us know that too.

Friday, May 06, 2011

We have met the enemy of innovation: He is us

I struggled for a long time to understand what the real barriers are for innovation. Yesterday, in a conversation with the folks at Xiameter, a brand from Dow Corning, a light bulb went off in my head. Where innovation is concerned, we've met the enemy. In fact, we know the enemy of innovation quite well. He is us.

I had a great conversation with several of the folks at Xiameter, and learned a lot about their goal to radically change the business model within their industry. Traditionally, Dow Corning has provided silicone to a range of clients, but wrapped that product in a lot of information, service and support. It became evident to individuals within Dow Corning that a large segment of the potential customer base didn't want or need anything except the silicone product itself, so Xiameter was launched to offer a radically different business model and distribution of the product to those customers who didn't want, or need, the service or support associated with the sales and distribution by Dow Corning. Xiameter learned a couple of valuable lessons by implementing the new business model with a new value proposition.

First, there was far less cannibalization than executives had initially feared. Less than 10% of the existing client base switched from Dow Corning's brand to Xiameter. Second, Xiameter "expanded the pond" by acquiring many prospective customers who wanted the product but needed a different interaction model which unbundled the service from the product. In fact this experience is true in many instances, where firms fear cannibalization they actually discover opportunities to enlarge their markets.

Xiameter successfully packaged a specialty product based on a B2B model and "sells" it as if it's a commodity B2C product. What I found most interesting, and the reason for the Pogo reference at the top of the blog, was what the Xiameter folks said about making the change and creating the new business model. The hard work, they said, wasn't in setting up the new distribution system or attracting customers. The hard part in changing the model wasn't in the external efforts, but in the internal workings of Dow Corning.

If you think deeply about this activity - changing a business model - that may come as a surprise. Frequently I think we in industry assume that a business model is dictated to us by the market, and to participate in the market we must accept what the players in the market have decided about how the market works. Changing a business model means enticing the firms in the market to adapt to the new model you are introducing. It would seem far easier to change a model internally than to change a market or industry externally. But there are several factors at play here. First, Xiameter was introducing a business model to serve unserved or underserved customers who had chosen not to interact with the existing business model, so they were additive to the customer base. Second, Xiameter is more than willing to co-exist with a high-touch, high service business model that Dow Corning provides. In this case, and I suspect in many cases, business model innovation expands the pie and attracts new customers. It does not have to be a zero sum game.

So, what's revealed by the great success at Xiameter, and in every innovation effort that I've been a part of, is that the existing "way" of doing business, the deep knowledge of how it gets done, the comfort with that approach and the inertia that builds up around the existing approach within a business is far more resistant to change and innovation than the market, prospects and customers that make up the likely customer base. The reason for this resistance is fairly simple. Innovation introduces change, change introduces risk and uncertainty, and few firms enjoy any of those experiences. Far safer, far more comfortable, to stay the course rather than introduce a lot of uncertain risk and change.

It turns out Newton was right. Objects at rest tend to stay at rest. In fact, they come to prefer to remain at rest and actively resist movement and change. It's not our customers or our markets that will resist innovation. In fact they often want and need new products and services. No, the biggest enemy of innovation is us - the compendium of existing expectations, processes, knowledge and experience. We've met the enemy, we see the face in the mirror every day, corporately speaking.

Monday, May 02, 2011

Achieving what the CEO wants through innovation

I've been surprised at low little discussion a new report from the Conference Board has generated among innovators. The CEO Challenge, while not specifically a survey on innovation per se, tells us a lot about what CEOs are thinking and how they rank priorities.

In the survey CEOs were offered 10 priorities that they were asked to rank. Growth, unsurprisingly, ranked number 1 basically across the board. According to a Wall Street Journal article, after growth, there was a significant divergence based on the industry. Some heavily regulated industries ranked government regulation as next most important, while manufacturing and firms not in financial services ranked innovation as the second most important priority. Financial services firms alone tended to rank innovation near the bottom. The WSJ suggests that that result is probably the outcome of increased federal scrutiny after the sub-prime mortgage meltdown, the issues with credit card interest rates and other financial industry issues that are attracting attention in Washington.

A quote that jumped out at me from the Wall Street Journal's reporting seemed especially important:

CEOs tend to balance talent, efficiency and innovation as their main strategies to drive growth but during crises, cost cutting can drown out the other two said Stanford University professor Robert Sutton. I'm getting the sense that CEOs have squeezed out [all] the efficiency that they can and now have to move to innovation and talent to grow he said. Talent wars between high-tech companies have heated up.

On the Conference Board site for the report, the top priorities are listed in ranked order, with growth ranked first, weighted almost twice as important as the next three priorities: talent, cost optimization and innovation. Interestingly, all three of the latter priorities have almost exactly the same weight. Taking financial services out of the equation, innovation is a clear second priority.

But what's interesting about these priorities is that some are outcomes and some are inputs. Business growth is an outcome, achieved when good people (talent) create compelling products (innovation) that customers want. Business growth is driven by new products, new services and new business models driven by innovation. It is difficult to have organic growth without innovation, so innovation is a clear ingredient to business growth.

But it's also hard to have business growth without good talent, and good talent is attracted to growing companies that have compelling products, interesting visions, the opportunity for growth for the individual. All of these factors happen when innovation is present, and are often missing when innovation is missing from a firm's agenda. Talent is fungible and will flow to the organizations that have the most compelling ideas and opportunities to convert ideas into new products and services. Innovation is a key ingredient to attracting and retaining good talent.

Of the four stated priorities, only cost optimization stands alone. Cost optimization doesn't drive business growth, and it often inhibits innovation. Talent isn't attracted to firms that consistently focus on cost optimization, and cost optimization doesn't grow new talent or many new ideas. Cost optimization is an expedient way to sustain profits without growth, but only in the short run. One could argue, in fact, that cost optimization is the antithesis of business growth, and the mere fact it shows up so prominently in the priorities of the CEOs is a reflection of the economic environment they face, rather than a long term stated objective.

The takeaway: get innovation right and you'll drive business growth. Get innovation right and you'll attract and retain the best talent. Innovation is the petri dish that will create the outcomes CEOs want.

OVO is an innovation consulting firm working with Fortune 5000 firms to create repeatable,
sustainable innovation capabilities and disciplines in the "Front End" of Innovation. We provide innovation consulting and innovation training.